Face value

Ringing off

Arun Sarin has seen off his critics and is leaving Vodafone in good shape

WHEN Arun Sarin took over in July 2003 as chief executive of Vodafone, the world's largest mobile operator by revenues, there was general agreement about what needed to be done—and that he was the right man to do it. His swashbuckling predecessor, Sir Christopher Gent, had transformed Vodafone from an obscure British firm into a global giant through a series of daring acquisitions, most famously the hostile takeover of Mannesmann, a German operator, in 2000. After all this empire-building, the theory went, Vodafone needed an administrator to come in and quietly fit the pieces together. The industry was also on the verge of launching its much-hyped “third generation” (3G) services, which would require a steady hand, attention to detail and operational rigour.

Mr Sarin, who had a reputation for this sort of thing from his days as chief operating officer at AirTouch, an American operator that Vodafone had bought in 1999, seemed the perfect choice. But things did not quite work out as expected. Mr Sarin, who announced on May 27th that he intends to stand down as chief executive in July, has had a bumpy ride. But he will leave the company in good shape, and his reign has been a success—just not in quite the way that people originally anticipated.

Things began as expected. When Mr Sarin took over, the clear priority was to get Vodafone's local affiliates working as a whole. “We had not done that, and frankly it was quite a sore point,” he says. So he started by revamping the organisation, binding the companies together and untangling the backroom spaghetti to simplify and standardise operations—and reduce costs.

But after a year or two it became clear that quietly fitting the pieces together would not be enough. Vodafone's shares were doing worse than those of its rivals, and repeated attempts to turn things round at its troubled Japanese unit had failed. Investors also wanted Mr Sarin to sell the company's stake in Verizon Wireless, a big American operator. It used a different wireless technology, so there was little scope for exploiting scale economies in purchasing; nor could Vodafone, as the minority partner, exploit its brand in America. Along with the problems in Japan, this highlighted the limits to Vodafone's global ambitions.

Mr Sarin's most difficult period came in mid-2006, “when people were calling for his head”, says Damien Chew, an analyst at ING, an investment bank. There was infighting on the board worthy of a medieval court, and it ended only when Mr Sarin purged his predecessor's lieutenants. Some 10% of shareholders voted against his reappointment at the firm's annual meeting. Vodafone's mobile-only model, which once seemed visionary, began to look outdated, as the industry embraced “convergence” between fixed-line, mobile, broadband and television services. And 3G was not yielding the expected returns in Europe.

It was a close-run thing. In retrospect Mr Sarin's problem was that he had chosen the right new strategy—reducing Vodafone's dependence on developed markets, and moving instead into high-growth emerging markets—but it was not what unhappy investors wanted to hear. He began the shift in mid-2005, taking control of operators in the Czech Republic and Romania and then acquiring Telsim, a Turkish operator, in December. Many investors were livid: Vodafone's acquisition spree was supposed to be over, and Mr Sarin was accused of paying far too much for Telsim. But if he had spelled out his new ideas in early 2006, says Mr Chew, “there would have been a lot of scepticism”.

For a while Mr Sarin's survival was in doubt, but he soothed his critics by selling Vodafone's ailing Japanese unit and toughed it out until the strong growth of Vodafone's new divisions in eastern Europe and Turkey had demonstrated his new strategy's potential. He also switched from a “mobile-only” to a “mobile-plus” approach, offering fixed-line services in some markets. His strategic shift was crowned by the acquisition of Hutchison Essar, an Indian operator, in February 2007. Vodafone swiftly integrated the company and successfully exploited its scale and operational expertise to provide cheap handsets and expand coverage. It was partly down to luck, but Mr Sarin's survival ultimately proved to be in shareholders' long-term interests. Had he given in to short-termists who wanted to sell Vodafone's American unit, he says, there would have been pressure to sell off other assets, and “Vodafone would not exist as a company today.”

Out of India

It seems fitting that it was the acquisition of an Indian firm that sealed the turnaround in Mr Sarin's fortunes. Born and raised in India, the son of a well-to-do military officer, he took an engineering degree at the Indian Institute of Technology, before moving to California, where he did a further degree and an MBA and became an American citizen. Mr Sarin's Indian roots were an asset during the fight for Hutchison Essar. And in retrospect, having an Indian-American running Vodafone was exactly the right choice for a company that is now trying to bridge mature and developing markets. This week the group reported strong financial results, and it recently reported that it now has more customers outside western Europe than within it.

Mr Sarin's successor will be his deputy, Vittorio Colao, an Italian who runs Vodafone's European operations. As well as continuing today's strategy with further acquisitions in Africa and Asia, says Mr Sarin, Mr Colao must work out how to compete and co-operate with industry giants such as Nokia, Google and Microsoft as the internet goes mobile, and new mobile-advertising markets open up. “His big challenge is to figure out that bit,” says Mr Sarin. He thinks Mr Colao's experience in the media industry will prove an asset. For his part, Mr Sarin says he has not decided what to do next. But having seen off his critics and fixed Vodafone's new course with an acquisition in the country of his birth, it clearly seemed like a good moment to ring off.